A change to the Income Tax Act 2007 allows for a simpler process to claim a deduction for expenditure incurred in using part of your home as a home office for your business. This simplified process removes the need to keep detailed records of your monthly expenditure on utility costs such as electricity, gas, water, home and contents insurance, and telephone and internet charges. Instead of calculating the actual expenditure and apportioning this between business and private use of your home, you can instead choose to apply a standard square metre rate set by Inland Revenue. Premise costs such as rent, mortgage interest and rates must still be claimed based on the business proportion of actual expenditure.
For the 2017/18 income year Inland Revenue has set the square metre rate at $41.10 per square metre. Inland Revenue will update the rate for every income year to ensure it is reflective of the average annual cost of utilities for the average sized New Zealand home.
Under this method the calculation of a home office deduction comprises two parts. The first is a deduction for the standard utility costs found by multiplying the standard square metre rate by the square metre area of the property used primarily for business purposes. Added to this is a claim for the business portion of the premise costs found by multiplying total premise costs by the business portion of the premises (business square metres divided by total square metres of premises).
For example, if you have a 300m2 home and use 30m2, your home office claim would comprise $1,233 ($41.10 x 30m2) for utility costs and 10% (30m2/300m2) of your mortgage or rent and rates for the year.
Use of the square metre rate method is optional, but a taxpayer who chooses to use the square metre rate method is not entitled to claim any other deductions for the business use of their home.
Talk to your Crowe Horwath adviser to find out whether this simplified home office claim method is right for you.
Technical Director – Tax Advisory